In a strategic move mirroring its competitor Zomato, Swiggy, the prominent foodtech major, has introduced a 2% ‘collection fee’ on all orders made through its platform. The fee, designed to streamline customer payments, is set to be deducted from payouts to the listed restaurants, marking a significant shift in the business model.
While Swiggy has remained tight-lipped on the development, insider sources have confirmed the initiation of the new charge. The company reportedly informed select partner restaurants about the impending move, with the fee coming into effect from December 20, 2023, according to a communication seen by The Economic Times.
Notably, Zomato already imposes a similar ‘payment gateway fee’ of approximately 1.8% on all orders, a practice that has been in place for over four to five years. Swiggy’s decision to follow suit reflects a competitive landscape where major players seek diversified revenue streams.
However, the move has not been without controversy, particularly within the National Restaurants Association of India (NRAI). Sagar Daryani, vice president of the NRAI and founder of QSR chain Wow! Momo, termed Swiggy’s new charges as an ‘unwelcome distraction,’ suggesting that the ‘collection fee’ is essentially a means of indirectly raising commission costs.
The imposition of the collection fee aligns with Swiggy’s broader strategy to explore alternative revenue streams and enhance its financial performance, especially as it gears up for a public listing in the coming year. Earlier this year, the foodtech giant increased its platform fee to INR 3 per order, a move aimed at improving unit economics and bolstering revenues.
With an average order value around INR 400, the 2% collection fee could potentially contribute an additional INR 8 in revenue per order for Swiggy. This adjustment aligns with the company’s efforts to present a robust balance sheet to investors as it prepares to file for its IPO.
According to Prosus, Swiggy’s investor, the startup’s food delivery business witnessed a commendable 28% year-on-year growth in gross merchandise value (GMV) during the first six months of FY24, reaching $1.43 Bn. Swiggy emerged as one of the top performers in Prosus’s portfolio, boasting an impressive Internal Rate of Return (IRR) of 7% in H1 FY24.
